European stockmarkets fell to their lowest level for two years amid fears of
recession, another banking crisis and political paralysis in Berlin.

The FTSEurofirst 300 – the pan-European index of leading shares – fell 0.7pc to 904.07 points, its lowest level since July 2009. In Paris, the CAC 40 closed down 1.13pc, while Germany's DAX slid 1pc.

American markets reopened after Labor Day on Monday and quickly followed suit – both the Dow and Nasdaq fell, shedding 1.5pc and 1.1pc respectively in late trading.

On the Continent, French banks, which hold billlions of euros of sovereign bonds, led the slump. BNP Paribas and Societe Generale lost 5.2pc and 6.3pc respectively.

Fears over the ability of European leaders to solve the debt crisis – and stop the slide into recession – reached fever pitch ahead of Wednesday's ruling by a German constitutional court over the legality of Berlin's agreements to bail out Greece, Ireland and Portugal.

Experts said they do not expect the court to rule against Germany's contributions so far. However, it could add conditions and terms to future contributions that would undermine the market's already shaky confidence in the euro rescue efforts.